The Monetary Authority of Singapore
(“MAS“) has on 15 December 2021
published a consultation paper on a proposed Notice to require
corporate finance (“CF“) advisers to
observe certain minimum standards when they undertake due diligence
work.
This is part of MAS’ efforts to raise the standards of
conduct of CF advisers, to strengthen public confidence and to
promote informed decision-making by investors.
- Introduction
By way of background, CF advisers provide advice to entities who
intend to raise funds or are involved in takeover and merger
transactions. Some CF advisers also act as issue managers and
advise on initial public offerings
(“IPOs“) and other public issuances.
CF advisers are presently subject to existing conduct
requirements, such as mitigating potential conflicts of interests
that may arise from their operations, and maintaining records
relating to the monitoring of compliance with their policies and
procedures. Issue managers are also subject to criminal liability
for any false or misleading statements contained in prospectuses in
respect of the public issuances they advise on.
Notwithstanding the above requirements, due to the key role that
CF advisers play in ensuring accurate and complete disclosures, MAS
is proposing to impose additional requirements to help ensure that
investors can rely on information of better quality when making
their investment decisions.
- Proposed Notice
A. Scope of proposed Notice
Preliminarily, the proposed Notice will apply to all licensed CF
advisers, as well as banks, merchant banks and finance companies
who are exempt CF advisers. The requirements in the proposed Notice
will apply to CF advisory engagements which are entered into on or
after the date of commencement of the Notice. Presently, MAS has
not indicated when the Notice is expected to come into effect.
The proposed Notice (given in Annex A of the Consultation Paper)
is divided into two Parts, with Part I comprising general
requirements that apply to CF advisers when advising on corporate
finance transactions and Part II comprising specific requirements
that additionally apply when CF advisers are involved in IPOs,
reverse takeovers and very substantial transactions (as defined in
the SGX Mainboard Rules or Catalist Rules).
B. Requirements when advising on corporate finance
Under Part I of the proposed Notice, CF advisers will firstly
have to develop and implement policies, procedures and controls to
comply with the proposed Notice, as well as to monitor their
implementation and make enhancements where necessary.
Secondly, CF advisers will be required to act with due care,
skill and diligence when advising on corporate finance, including
but not limited to when they determine the amount of due diligence
needed for a transaction, assess and verify information given by
their customers, or look out for any contradictory information or
developments.
Thirdly, CF advisers will be required to manage conflicts that
could arise between their own interests and the interests of their
customers. They will also have to manage conflicts of interest that
are arise within their CF advisory activities, and other activities
which they engage in in relation to the offering process. They will
also have to manage the risks of their personnel disclosing
confidential or price sensitive information, or dealing in capital
markets products using such confidential or price sensitive
information. If they are not able to adequately mitigate such
conflicts of interest, they would be required to refuse the
engagement or refrain from providing further advice on corporate
finance (as applicable).
CF advisers will also have to establish a governance framework
over the performance of due diligence by staff. This must include
ensuring that material issues of non-compliance are reported to
senior management, and that staff possess the appropriate
knowledge, skills and experience for the relevant transactions they
are involved in.
Finally, CF advisers have to keep records evidencing compliance
with the Notice and/or evidencing the due diligence work that is
performed for customers or any advice that is given to customers.
Such records are to be kept for at least 5 years from the date that
the corporate finance transaction was completed, terminated or
otherwise concluded.
C. Requirements when advising on IPOs, reverse takeovers and
very substantial acquisitions
Part II of the proposed Notice sets out requirements that
additionally apply to CF advisers who advise on IPOs (including
listings via SPACs) on the SGX, and additionally, who advise on
reverse takeovers and very substantial acquisitions (as defined in
the SGX listing rules) on the SGX.
Firstly, such CF advisers must advise and guide listing
applicants on their duties and responsibilities under relevant laws
and regulations, including relevant listing rules. This will be
subject to the terms of agreement between the CF adviser and the
customer.
Secondly, they are required to assess and be satisfied that a
listing applicant is suitable for listing. Such due diligence would
involve verifying material representations, conducting background
checks, monitoring any information or developments relating to the
listing applicant or transaction, and due diligence on key business
assets, major business customers and other such stakeholders.
The due diligence performed for each listing application will
also have to be reviewed by staff of the CF adviser who are
independent of the transaction team. To the extent that the CF
adviser uses a third party service provider, it must remain
responsible for any due diligence work done by the third party
service provider. The CF adviser must also investigate any
allegations or complaints made against the listing applicant or
other relevant parties, if it comes to know of any such allegations
or complaints.
As with reliance on third parties, where CF advisers rely on
experts, they would also have to ensure that the experts are
suitably qualified to provide their opinions and/or reports, and to
review the opinions and/or reports to satisfy themselves that it
would be reasonable for them to rely on these documents.
Finally, before submitting the listing application and before
the listing applicant is admitted on the SGX, the CF adviser would
need to have reasonable grounds to be satisfied, among other
things, that the due diligence has been performed satisfactorily,
that the information submitted in the listing application is
complete, that all issues which have been highlighted through
independent review have been resolved, and that the listing
applicant and other relevant parties are able to comply with the
obligations under the listing rules.
- Closing Date of Consultation
The consultation closes on 15 February 2022 and a copy of the
MAS consultation paper can be obtained here.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
